Melbourne: Australia’s image as a top destination for foreign students suffered another setback on Friday after four bankrupt colleges closed, leaving more than 2,000 students stranded. Australia’s A$13 billion ($12 billion) international student sector, the country’s third-largest export earner behind oil and coal, has come under fire after reports some colleges had taken payments for certificates and residency visas.

The issue has caused diplomatic discomfort for Australia, with Indian officials expressing concern over the treatment of Indian students, who make up the largest number of overseas students in Australia.

A spate of attacks on Indian students in Australia earlier this year also sparked angry protests in India and prompted prime minister Kevin Rudd to call his Indian counterpart to assure him of student safety.

Global Campus Management Group, which owns four private colleges in Sydney and Melbourne, was placed into voluntary administration on Thursday.

India’s deputy high commissioner to Australia, V.K. Sharma, said an estimated 300 or so of the affected students were Indians and that the recent collapse of some colleges had led to a sharp fall in student arrivals from India.

“There was also a lot of fraud going on in the system," he added.

He said the current shake-out of Australia’s education system was necessary to restore the confidence of overseas students, a process that could take a couple of years.

The Australian Education Union said greater regulation of the private colleges was needed.

“There are a growing number of private colleges collapsing and it’s the students who pay the price," said union president Angelo Gavrielatos.

“The scrutiny of new and existing operators has not been adequate to ensure that they are financially viable and delivering a quality education to international and domestic students."